Impact of CBN Cash Reserves Requirement on the Financial Performance of Deposit Money Banks in Nigeria (Published)
This study investigates the impact of the Central Bank of Nigeria’s (CBN) Cash Reserve Requirement (CRR) on the financial performance of Deposit Money Banks (DMBs) in Nigeria, focusing on Return on Assets (ROA), Return on Equity (ROE), Liquidity Rate (LR), and Loan-to-Deposit Ratio (LDR). Anchored in Monetary Theory and Resource Dependence Theory, the study employs an ex-post facto research design and utilizes secondary data from 2018 to 2023. Descriptive statistics, correlation analysis, and simple regression analysis were applied to examine the relationships between CRR and the performance metrics. Findings reveal that CRR significantly influences all four metrics, demonstrating a strong positive relationship with ROA, ROE, LR, and LDR. These results highlight the dual role of CRR in promoting financial stability and influencing operational strategies in the banking sector. The study concludes that while CRR enhances regulatory compliance and liquidity, it also imposes constraints on lending and profitability, necessitating adaptive strategies by banks. Policymakers are advised to balance CRR adjustments to optimize liquidity control and profitability, ensuring alignment with Nigeria’s economic development goals.
Keywords: Deposit Money Banks, Financial Performance, Loan to Deposit Ratio, Return on Assets, Return on Equity, cash reserve requirement, liquidity rate